GOLD : Tentative Signs of Liftoff
Updated
The elections proved what we already knew. Trump’s re-election would be good for the dollar, at least in the short-term, whereas a Biden win is distinctively negative. Why? More stimulus is great for stocks, precious metals—everything except the dollar. Both Trump and Biden planned to massively increase spending, but Biden is expected to spend so much more than Trump on everything from clean energy, to free education, healthcare, infrastructure, welfare payments, and artificial intelligence. This means another massive increase in debt, which the IMF forecast two weeks ago. Who is going to pay for all of this new debt? The Fed, of course, by printing more dollars out of thin air. This is extremely negative for the dollar. The dollar remains near perfectly negatively correlated to Gold. What is bad for the dollar is good for Gold, Silver, and the miners.
It is clear that a Biden victory is therefore the best news for precious metals and miners. While I am cautiously optimistic that the lows have been seen in the precious metals space and the mega-rally has begun to new highs, there are several key issues to consider:
1. Trump has not conceded. Quite the opposite. He plans to challenge the legitimacy of critical Biden ballots all the way up to a Supreme Court dominated by Republican appointees.
2. The Democrats lost seats in the House, but more importantly, the Senate remains in Republican hands. Even if Biden is confirmed, the stalemate on stimulus could continue for quite some time. The recent euphoria could be reversed somewhat as that reality settles in.
The biggest risk, but a low probability, is that the markets get carried away with a Biden presidency and Trump ultimately wins out, courtesy of the Supreme Court. This would cause a massive reversal of all the market moves post election day, not to mention widespread social unrest.
Gold has clearly broken its downtrend in bullish fashion, its first higher high since its peak in August. We now have a higher low followed by a higher high. The short-term trend is UP. Any break back below the upper trendline would suggest this was a fake breakout. Until then, the bulls are clearly in the ascendency.
Until or unless we break support, the trend of higher highs and higher lows remains our friend and the trend is clearly up. A little overdone in the short-term. If you want to get long precious metals and miners, I'd recommend you place a stop below 1910, former resistance in Gold, now support. We break back below that and bears take charge.
Although risks remain, on balance, it sure looks like the bottom is in and we’re off to new highs in metals and miners. At the end of the day, regardless of who is the next president, I still expect metals and miners to skyrocket higher either way, sooner or a little later.
It is clear that a Biden victory is therefore the best news for precious metals and miners. While I am cautiously optimistic that the lows have been seen in the precious metals space and the mega-rally has begun to new highs, there are several key issues to consider:
1. Trump has not conceded. Quite the opposite. He plans to challenge the legitimacy of critical Biden ballots all the way up to a Supreme Court dominated by Republican appointees.
2. The Democrats lost seats in the House, but more importantly, the Senate remains in Republican hands. Even if Biden is confirmed, the stalemate on stimulus could continue for quite some time. The recent euphoria could be reversed somewhat as that reality settles in.
The biggest risk, but a low probability, is that the markets get carried away with a Biden presidency and Trump ultimately wins out, courtesy of the Supreme Court. This would cause a massive reversal of all the market moves post election day, not to mention widespread social unrest.
Gold has clearly broken its downtrend in bullish fashion, its first higher high since its peak in August. We now have a higher low followed by a higher high. The short-term trend is UP. Any break back below the upper trendline would suggest this was a fake breakout. Until then, the bulls are clearly in the ascendency.
Until or unless we break support, the trend of higher highs and higher lows remains our friend and the trend is clearly up. A little overdone in the short-term. If you want to get long precious metals and miners, I'd recommend you place a stop below 1910, former resistance in Gold, now support. We break back below that and bears take charge.
Although risks remain, on balance, it sure looks like the bottom is in and we’re off to new highs in metals and miners. At the end of the day, regardless of who is the next president, I still expect metals and miners to skyrocket higher either way, sooner or a little later.
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